Whether or not a business gift is taxable depends on the type of gift it is, and various criteria set forth by the Internal Revenue Service. Here we discuss the tax deductible status of gift cards/cash, de Minimis gifts, prizes, and holiday parties.
It's beginning to look a lot like...
Yes, the holidays are here. And you, as part of your company's management team, want to put in good cheer for your team.
Aside from the office holiday party, you'd like to show your appreciation for a job well done throughout the year with a token or two this holiday season, but were you aware that some holiday gifts are considered tax deductible?
To get an understanding of how your holiday gifts may affect your taxes, let's first get a firm understanding of a few key terms.
The IRS defines "Gift" as--“Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.”
Here are 4 gifts you can give your employees that may or may not be tax deductible.
1️⃣ Gift Cards, Cash Gifts, Gift Checks
If you give a cash equivalent gift like gift checks or gift certificates, those are taxable.
2️⃣ De Minimis
The IRS defines de Minimis benefits as-- "one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical. "
De Minimis is non-taxable. The keyword in this benefit is it should be infrequent and of minimal value. Most of the time, the total value should be less than $100, although this is not a hard line. Here are a few examples:
- Flowers
- Gift baskets or holiday baskets
- Turkey, duck, ham, or other food items
- Tickets to sporting events, theater, concerts, or movies
- Holiday décor
3️⃣ Prizes
Oh, the office holiday raffle! It's a source of joy and yearly envy for many employees. Hopefully, your employees understand that you do this for them, as prizes are taxable.
4️⃣ The Holiday Party
The office holiday party. Even though we think that the government taxes nearly everything we sweat for, they're no Scrooges. Holiday parties are not income, and therefore are fully tax-deductible. There are some caveats, however:
- Every employee must be invited, without discrimination
- The party must not be too extravagant or excessive
- It needs to be practical
- There should at least be some food and beverages
As a company, show how much you value everyone by spreading the holiday cheer, understanding that some gifts are surprisingly tax-free, while others are (even more amazingly) tax-deductible! We at Peter Witts CPA can help you plan a tax-free Holiday experience for your company. Feel free to contact us for more details. Happy Holidays.
I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.